Cost Accounting Exercise 2023 Business Finance

2023 1 Mayberry Company had the following journal entries recorded for the end of June Unfortunately the company s only


1) Mayberry Company had the following journal entries recorded for the end of June. Unfortunately, the company’s only accountant quit on July 10 and the president is at a loss as to the company’s performance for the month of June.




Materials Control                                                               150,000


    Direct Materials Price Variance                                                                      5,000


    Accounts Payable Control                                                                           145,000




WorkinProcess Control                                                    60,000


Direct Materials Efficiency Variance                                4,000


    Materials Control                                                                                             64,000




WorkinProcess Control                                                 425,000


Direct Manufacturing Labor Price Variance                  7,500


    Direct Manufacturing Labor Efficiency Variance                                     9,000


    Wages Payable Control                                                                                423,500








a.    What kind of performance did the company have for June? Explain each variance.


b.    Why is Direct Materials given in two entries?




2) Quiett Truck manufactures part WB23 used in several of its truck models. 10,000 units are produced each year with production costs as follows:




                Direct materials                                 $ 45,000


                Direct manufacturing labor              15,000


                Variable support costs                        35,000


                Fixed support costs                              25,000


                        Total costs                                  $120,000




Quiett Truck has the option of purchasing part WB23 from an outside supplier at $11.20 per unit. If WB23 is outsourced, 40% of the fixed costs cannot be immediately converted to other uses.




a.             Describe avoidable costs. What amount of the WB23 production costs is avoidable?


b.             Should Quiett Truck outsource WB23? Why or why not?


c.             What other items should Quiett Truck consider before outsourcing any of the parts it currently manufactures?






3) Collier Bicycles has been manufacturing its own wheels for its bikes.  The company is currently operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 30% of direct labor cost.  The direct materials and direct labor cost per unit to make the wheels are $1.50 and $1.80, respectively.  Normal production is 200,000 wheels per year.




A supplier offers to make the wheels at a price of $4 each.  If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $42,000 of fixed manufacturing overhead currently being charged to the wheels will have to be absorbed by other products.








a.             Prepare an incremental analysis for the decision to make or buy the wheels.


b.             Should Collier Bicycles buy the wheels from the outside supplier?  Justify your answer.




4)Today, Turbo Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses. Pat is considering the purchase of this faster, loweroperating cost convection oven to replace the existing one they recently purchased. Selected information about the two ovens is given below:




                                                                                Existing             New Turbo Oven


        Original cost                                                $60,000                                 $50,000


        Accumulated depreciation                       $ 5,000                                            


        Current salvage value                               $40,000                                            


        Remaining life                                              5 years                                  5 years


        Annual operating expenses                    $10,000                                  $ 7,500


        Disposal value in 5 years                                  $ 0                                          $ 0






a.     What costs are sunk?


b.     What costs are relevant?


c.     What are the net cash flows over the next 5 years assuming the Pizzeria purchases the new convection oven?


d.    What other items should Pat, as manager of the Pizzeria, consider when making this decision?




5) Buck Corporation plans to grow by offering a computer monitor, the CM3000 that is superior and unique from the competition. Buck believes that putting additional resources into R&D and staying ahead of the competition with technological innovations are critical to implementing its strategy.








a.     Is Buck’s strategy one of product differentiation or cost leadership? Explain briefly.




Identify at least one key element that you would expect to see included in the balanced scorecard




b.     for the financial perspective.


c.     for the customer perspective.


d.    for the internal business process perspective.


e.     for the learning and growth perspective.






6) Heather’s Pillow Company manufactures pillows. The 20X5 operating budget is based on production of 20,000 pillows with 0.5 machinehour allowed per pillow. Variable manufacturing overhead is anticipated to be $220,000.




Actual production for 20X5 was 18,000 pillows using 9,500 machinehours. Actual variable costs were $20 per machinehour.








Calculate the variable overhead spending and efficiency variances.




7) Everjoice Company makes clocks. The fixed overhead costs for 20X5 total $720,000. The company uses direct laborhours for fixed overhead allocation and anticipates 240,000 hours during the year for 480,000 units. An equal number of units are budgeted for each month.




During June, 42,000 clocks were produced and $63,000 were spent on fixed overhead.






a.     Determine the fixed overhead rate for 20X5 based on units of input.


b.     Determine the fixed overhead staticbudget variance for June.


c.     Determine the productionvolume overhead variance for June.




8) Silver Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large onetimeonly special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:




                Direct materials                                        $100


                Direct labor                                                  125


                Variable manufacturing support            60


                Fixed manufacturing support                  75


                        Total manufacturing costs              360


                Markup (60%)                                             216


                Targeted selling price                             $576




Silver Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.






a.             For Silver Lake Cabinets, what is the minimum acceptable price of this onetimeonly special order?


b.             Other than price, what other items should Silver Lake Cabinets consider before accepting this onetimeonly special order?


c.             How would the analysis differ if there was limited capacity?


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